By the time you retire and decide to stop working, your income will be greatly affected as well as your lifestyle. You will lose your regular income stream from your salary, and you have to rely on age pension, or if you have managed to invest early on, you can access your superannuation funds.
But not all Australian seniors have managed to save enough money to make sure that their retirement will be comfortable. Based on a survey published by Mortgage Choice, 3 out of 5 Australians feel they don’t have enough money for retirement.[ RELATED POST: You don’t need to keep working until 70! ]
After years of working hard and paying your mortgage, you may have enough home equity or even achieve full ownership of your home. One common solution for retirees who need additional cash is to sell their homes. Aside from looking for a new place to live, there are also financial and emotional factors that you need to consider before you sell your home outright.
Bear in mind that your age pension entitlement will depend on the income you receive (income test) and the value of your assets (assets test). Hence, selling your home will have an effect on the amount of pension you can receive from the government.
Under the assets test, your home and the land it is built on are not counted. If you decide to put your home on the market, the proceeds will be exempted from the assets test for a year, as long as you are planning to buy another home. But take note that the proceeds from the sales of your home will be counted under the income test.
For example, a 68-year-old widow from Sydney decides to sell her home after her husband died and her children moved out. She is expecting to sell her family home for $750,000, buy a smaller apartment for $400,000 and have $350,000 spare cash. After selling her home, the $350,000 was counted on the assets test, which has resulted to lower pension.
Selling your home where you have raised your children and made good memories with your loved ones can be stressful and often difficult for retirees. There’s no place like home, and it will help Australian seniors to spend their retirement years in the comfort of their neighborhood. Some retirees become unhappy after choosing to downsize and live in retirement villages. And once you sell your home, it is gone. It will difficult to find another place or buy your own home again.
In addition, the Australian Government recognises that many Australian seniors prefer to stay in their own homes as long as they can. That is why the government is now improving its aged care system in order to support older Australians to stay at home longer.
Instead of selling your own home and moving into a smaller apartment and in an unfamiliar neighborhood, you can try getting a reverse mortgage that will allow you to unlock the funds you need and still enjoy the comforts of your own home.
Through a reverse mortgage, you can borrow money using your home as a collateral. You have an option to take the loan as a lump sum, a line of credit, a regular income stream, or combination of these options. One of the advantages of a reverse mortgage is it doesn’t require a specific income to qualify, unlike other loans.[ RELATED POST: The Advantage of Taking a Reverse Mortgage Now ]
You also don’t need to make repayments while you are still living in your home. You can stay at your home for as long as you want and the only downside is that interest compounds over time. The loan must be paid in full once you sell your home, move to an aged care, or when you pass away.
Selling the family home or taking a reverse mortgage are important concerns that you should not decide on a rush. Be sure to consult a financial adviser who specializes in retirement planning and reverse mortgage products. For expert mortgage advice, call Seniors First on 1300 745 745 or send an email to firstname.lastname@example.org.
If you are born in or after 1966, you are a candidate for the new pension eligibility requirement that will take effect in 2035. By that time, you need to be 70 years old and above in order to be eligible for age pension.
If you don’t have access to additional source of income, that means you need to be working until 70 in order to afford daily expenses. Although the new rule is ridiculous, tightening pension entitlement is needed in order to have a sustainable budget in the future, according to officials.
If you are having a hard time securing a regular employment at 45, how much more when you turn 50 or 60? Let’s be realistic that when it comes to Australian workforce, you get less desirable as you age. Older workers find it hard to impress employers. Also, learning a new skill and changing careers in middle age is often challenging.
Surviving in the workforce until 60 is hard enough to say the least, and now the government wants us to work until 70?
You can always stack up on savings or super, but there’s still no guarantee that it will be enough to afford an early retirement. People usually rely on pension entitlements for their retirement and any additional income will be put on small luxuries or lifestyle upgrade that they definitely deserve after long years of working.
Now, when all else fails, a reverse mortgage is a great way to fund retirement especially if you are a cash-poor but asset-rich retiree. You can access the equity in your home and you won’t even have to pay the loan until you move out, sell the property, or die.
The rising cost of living and strict pension eligibility requirements are expected to give a boost for equity release sector in the months to come. Early this year, a cutback in both pension and part pension entitlements has affected more than 300,000 older Australians. It is certainly a difficult time for most seniors in the country, but with proper financial planning and access to right financial products, we can make things better for everyone.
(Article published by Mortgage Professional Australia Issue 16.11)
A combination of economics and demographics is bringing reverse mortgages back into the spotlight, and there’s a need for brokers to write them. MPA, in partnership with Heartland Seniors Finance, explains how you can bring reverse mortgage lending into your business.
DEMOGRAPHIC TRENDS rarely make for a viable business strategy. For instance, we all know that Australia’s population is ageing, but how can you actually cater for older customers with no intention of changing properties? That’s where reverse mortgages come in.
Reverse mortgages – which enable borrowers to release equity in their homes – have been brought back to prominence by an ageing population who want to stay in their homes, and by government policy and economics. By 2030, 3.6 million more Australians will be aged over 65 and thus eligible for reverse mortgages, according to CommBank, which has dubbed these customers ‘Peter Pans’. More immediately, the Coalition Government has already begun making changes to super pension rules, and most obviously, the cash rate is now at a historic low of just 1.5% and annual price growth has risen by 9% in Sydney and 7.2% in Melbourne.
Lenders are seeing the opportunity: the number of reverse mortgage providers has recovered substantially from a low point of five following the GFC.
For one of those lenders, Heartland Seniors Finance, potential reverse mortgage clients will look at brokers. CEO Andrew Ford says “brokers play a key part in mortgages and the mortgage market in Australia…brokers are the most valuable part of our distribution”.
Accordingly, they’re making it easier to get accredited, putting their course and test online in October. Heartland has its own accreditation, while some providers require brokers to complete a course through Senior Australians Equity Release (SEQUAL), the industry association for providers of equity release products.
Reverse mortgages are an area in which advice is essential – indeed, independent legal adviser is mandatory and that’s why consumers want a broker’s assistance, says Darren Moffatt, managing director of Seniors First.
“In some respects it’s a simple product, but it also has lots of implications if handled incorrectly. Seniors like to have someone guiding them through the process, particularly around product selection and lender selection.”
Moffatt, who’s based in Sydney, has been writing reverse mortgages since 2005. He’s seen the sector undergo two rounds of regulation – the NCCP in 2010 and more specific regulation in 2011 – but doesn’t believe it’s made his job much harder.
“There is more paperwork, but if you were doing the right thing beforehand you wouldn’t find it onerous; certainly we haven’t,” he says.
Like some other brokers, Moffat views increased regulation as an encouraging development. However, Peter Bolitho, director of Reverse Mortgage Finance Solutions on the Sunshine Coast, who’s been working with reverse mortgages for over 20 years, notes there’s “definitely been more regulation, but there are areas of regulation which still cause me some concern”.
Reverse mortgage clients come to Bolitho through referrals from branches, other brokers and increasingly through the company’s website as older people make more use of the internet.
Brokers should take note of who’s making the application, he warns. “My concern is when you have a son or daughter making an application on behalf of their parents, the danger of elder abuse is too great, I think.”
Brokers and lenders need to make sure that the funds will primarily benefit their borrower, but “without face-to-face contact it’s very difficult to establish that”.
Heartland Seniors boss Ford says brokers should feel comfortable writing reverse mortgages. “We’ve got a really robust and thorough fulfilment process which includes independent legal advice and gets the customers to talk to their family – and attest to the fact they have.”
Among other safeguards ‘hard coded’ into the product is the obligation to give the borrower a loan projection using ASIC’s calculator, and to explain alternatives – whether the borrower would be better off downsizing, or borrowing from friends and family – as well as how a reverse mortgage could impact on their pension and inheritance. With oversight from the broker, lender, client’s solicitor and possibly a financial planner, “if there’s something that consumers are uncomfortable with it’s going to be discovered somewhere along the line” says Senior First’s Moffat.
The timeframes involved in reverse mortgage lending can be incredibly diverse. While lenders’ turnaround is typically a couple of weeks – longer if refinancing is involved – the main delay is the client’s decision time: unlike buying a new house, there is no ‘trigger’ for reverse mortgage borrowers, explains Bolitho. There can be triggers – the client running out of money due to a car breakdown, for example – although these are generally preceded by the client researching reverse mortgages as a solution. At Seniors First, Moffat finds the client’s decision-making time is typically six to eight weeks (although his longer client took seven years); Bolitho’s figure is four to six weeks.
Many elements of applying for a reverse mortgage will be familiar to brokers: submitting paperwork, credit approval and receipt of funds. When deciding which product, however, there are a couple of details to watch out for. The interest rate is crucial, given many lenders won’t require any payments and this interest gets compounded. Regular fees should also be watched out for, for the same reason – Moffat says he tries to avoid them – and the LVR may be crucial to the client if they’re looking to get as much money out as possible.
In terms of conditions, there is some differentiation among lenders. Since 2012 the law has stipulated that reverse mortgage borrowers can never owe more than their house worth. At Heartland Seniors they also guarantee clients lifetime occupancy, explains Ford, and allow partial or full repayment at any time without a penalty. Some lenders allow flexibility as to whether they receive the funds as a lump sum, a line of credit or a regular advance as this can have consequences for pension eligibility. ASIC also advises borrowers to check the condition for live-in partners should the sole title-holder pass away.
Although commission rates are similar, the amounts involved in reverse mortgages are typically small – around $90,000 at Heartland Seniors Finance – and this presents a challenge for brokers. Most brokers cover the gap with a fee, explains Bolitho. “I believe that the majority of brokers in this area now charge a fee-for-service, which is discussed with and divulged to the client, because it’s the only way you can maintain a specialisation in this area.” Clients rarely take issue with a fee, he adds. “I’ve had probably one client in the last five years that complained about it. Clients understand that, as long as they’re getting that level of service.”
Reverse mortgages, it should be noted, typically stay on the books for longer and increase as clients draw out extra funds, meaning that over the long term they can form an important part of a broker’s book. Furthermore, for Moffat, writing reverse mortgages is a ‘feel-good experience’.
“You’re actually helping people: these loans have a very significant impact on people’s lives. That aspect of the work shouldn’t be underplayed; it’s why we do what we do.”
There’s another reason: necessity. As Moffat concludes, “this [over 60s] demographic is the fastest-growing part of the population; reverse mortgages provide a great opportunity for brokers to tap that part of the market…over the next 10 years you’re going to see this part of the market grow very rapidly.
Majority of Australian seniors are still reluctant to unlock their home equity through reverse mortgage loan.
Recent report from the Productivity Commission reveals that less than 1 per cent of older Australians use financial products to tap into the substantial wealth of their home. The same report also shows that age pensioners tend to be overly frugal and hold on to assets and even build a buffer of savings even into their later years.1
(Related Article: Housing Decisions of Older Australians [Infographic])
Senior finance education advocates such as the Senior Australian Equity Release Association (SEQUAL) are encouraging more Australians to consider equity release as their primary option to supplement their retirement income.2
Even the Productivity Commission itself believe that most older Australian home owners on low incomes could achieve a modest retirement living standard over the remainder of their lives by converting a percentage of their home asset to liquid cash.
So this 2016, why not consider unlocking your home equity? Here are the top five reasons to further convince you.
Once you stop working, your income could be significantly reduced. Relying on pension or superannuation may not be enough to sustain the lifestyle you need. Superannuation were only mandated by the Government in 1993. Hence, if you began working in the 50’s, 60’s, or 70’s, there is less chance that you have accumulated a significant amount.
Many seniors today don’t have enough cash for daily needs, yet they are living in homes that are worth hundreds of thousands and even millions. If you own your home, you can turn a percentage of it to cash, which you can use to make sure that you can live comfortably while in retirement. You can receive it in lump sum, or you can opt to receive monthly cash as additional income.
The Australian government is now doing precautionary measures to resolve the rising cost of aged care. According to the 2015 Intergenerational Report released by the Commonwealth of Australia, the $42 billion that we are now spending on pensions is expected to grow to $160 billion by 2055. About 80% of seniors today are expected to still receive their pensions four decades from now. This will put a lot of strain on the Australian economy.
The government encourages seniors to unlock their home equities as it will mobilize the idle assets estimated to be worth around $625 billion. The government is still considering to include family homes in assets tests, which could make you ineligible for full pension if you own your home.
The Pension Loans Scheme (PLS) is a form of reverse mortgage that is being offered by the government, which grants 45% of home value. In 2014, the PLS released loans amounting to $31.9 million, which is just a blip in the ocean when you compare it to the $625 billion worth of properties that can be unlocked by senior home owners. In this government plan, you can use your home equity to access cash, but you will lose your right for full aged pension.
This plan could be an attack to pensioners, and we could sugar coat this plan by persuading you that your living standards will improve.
But take time to consider this. You have worked for many years, paid for your mortgage, and accumulated this wealth. You have already earned it, so why don’t you enjoy it? This is a viable solution to take some of the strain of aged care costs.
Today, three out of four Australian seniors own their homes. Unlocking home equities can help the whole country to prevent a huge debt problem decades from now.
Surely, you don’t want to spend your retirement years worrying about high interest debt. However, it is a fact that seniors living on aged pensions are finding it more difficult to sustain standard living and many are using credit cards just to make ends meet.
Many Australian seniors are using their pensions to pay high-interest debt after their retirement. A 2014 report released by SEQUAL shows that about 30% of their clients have used reverse mortgage to pay off their debt.
You can save money on loan repayment while getting peace of mind when you obtain reverse mortgage loan. More often than not, you will not be qualified for an equity credit line or second mortgage if your income is mainly from pension or superannuation.
Obtaining a reverse mortgage will give you access to cash that you can use to pay off all your debt. You can spend your retirement without worrying about repayments, as repayments for reverse mortgage could be voluntary.
(Related Article: End FInancial Worries in Retirement with a Reverse Mortgage)
After long years of working hard and building your personal wealth, you have now all the time in the world to do anything you want. Why not realize your dream holiday this year? You can spend weeks in a Caribbean Cruise. Visit your grandchildren in New York. Or finally see the Great Pyramids of Egypt with your friends. Nothing could hold you back, except if you don’t have money to finance your travel and holidays, of course.
Rather than using your pension or spending your personal savings to fund your holidays, you can unlock a percentage of your home equity to access more cash through reverse mortgage loan. Seniors First provides reverse mortgage loan to finance your dream vacation. And with interest rates that are usually much lower compared to personal loans or credit cards, you can save thousands of dollars. So start planning for your grand holiday this year!
Even though reverse mortgage has gained bad press a decade ago, more stringent rules and wider range of product options have made reverse mortgage safe. Today, reverse mortgage has become a legit financial solution for senior Australians.
Once you obtain a reverse mortgage loan, you are protected as you can’t be forced out to move from your home. The government is also now imposing a non-recourse loan contract, which prohibits the lender in touching your other assets in case of default. There is also the no-negative equity guarantee, which means you will not be held liable for a loan that is more than the value of your property. Hence, even if the interest accumulates as you live longer, the lender will not charge you for more than the worth of your house.
Make 2016 the day you gain freedom from your financial woes and live the life you want through the help of reverse mortgage. If you want to learn about reverse mortgage in detail, you can download our guide, Reverse Mortgage Secrets. This FREE special consumer report will help you learn more about reverse mortgage and how you can enjoy your home equity safely and save thousands.
You can also call Seniors First Finance at 1300 745 745 or post your comments below.
1Productivity Commission 2015, Housing Decisions of Older Australians, Commission Research Paper, Canberra.
2Senior Australian Equity Release Association (SEQUAL) http://www.sequal.com.au/who-is-sequal
The day is finally here: I’m really excited to announce the official re-launch of Seniors First!
I can’t quite believe it, but it’s been eight whole years since we first started helping Australian seniors with reverse mortgage and equity release finance. Where did the time go??
It feels just like yesterday, but since 2006 we’ve helped thousands of people, won industry awards, and developed a reputation I’m really proud of. If you’re interested, check out our history page (yes, I’ve aged!)
What’s Our ‘Re-launch’ All About?
Well it’s my view that all good organisations never stand still for long. To be successful over the long-term companies must constantly listen, adapt and develop over time so that the needs of customers always met. The world changes fast, and we must change with it to keep up. Our re-launch is a conscious way to demonstrate to you, staff and partners that we are positioning for the future of reverse mortgages. And that future is online.
To this end, we’ve refreshed the Seniors First brand identity with an updated logo.
And we’ve worked with my other business to build this amazing new website. Our objective was to create a leading online resource for reverse mortgage and senior’s home equity release in Australia. We want this site to become THE destination for retirees, pensioners, and families who are considering reverse mortgage finance so we’ve packed it full or really useful information and tools:
Why Are We Re-launching Now?
The GFC of 2008/2009 was very hard on the reverse mortgage market in Australia. Essentially the number of lenders shrank from over twenty to just a handful. This was bad for consumers and the lack of product choice resulted in many borrowers missing out, or perhaps paying more in interest and fees that they otherwise might have. A lack of competition is never healthy for any market.
However I’m pleased to report that (five years later!) new lenders and products are once again emerging. As this rate of innovation of product choice increases, senior borrowers will need a specialist finance broker more than ever before.
In addition, there are signs of ‘shifting sands’ in public policy that are worrying many pensioners and self-funded retirees. The Government is increasingly giving signals that aged pension funding, health card concessions, and tax breaks that favour seniors are under review and may be reduced, or cut. In this environment – and with the vast majority of household wealth stored in property – the ability to release equity from the home safely and easily may become crucial for many Australians.
In the near future, it’s very possible that government policy will push more of the retirement funding burden to individuals and thereby increase the demand for reverse mortgages. With our new website, extra staff, and investment in online technology, I’m pleased to say this is a challenge that Seniors First is ready to meet.